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Sierra Wireless vs CalAmp: Which Is the Best Internet of Things Stock?

These two stocks show a lot of promise in the Internet of Things, but only one can come out on top.

The Internet of Things (IoT) offers a lot of opportunity for investors, both because some of the companies making big waves in the industry are very small and have lots of room for growth and because the IoT is still a burgeoning industry (side note: if you need a quick intro to the Internet of Things, read this).

But picking a winner is never easy, and the IoT has shown us thus far that no one owns this market just yet. But there are a few companies poised to make big gains from the Internet of Things, and two of them are Sierra Wireless(NASDAQ:SWIR) and CalAmp(NASDAQ:CAMP). Let's take a look at both and see which one is ready to benefit more from this emerging trend.

The case for CalAmpCalAmp essentially depends on its Wireless Datacom segment for its revenue. The business deals with mobile resource management and machine-to-machine technology (M2M). For example, Caterpillar is a very large CalAmp customer that uses the company's wireless technology to monitor its large equipment for mechanical problems, helping the company anticipate equipment service needs and minimize downtime.

In Q1 2016, CalAmp's Wireless Datacom revenue hit $57.8 million, a 21% jump year-over-year. But the company's other business, its Satellite division, saw its revenue fall to just $7.6 million, representing a 31% drop year-over-year. CalAmp investors should remember that the company's Satellite division performed much higher than usual last year, hence the huge revenue percentage drop in Q1. Keep in mind, too, that the company's Satellite division contributed less than 19% of revenue in all of 2014, compared to the more lucrative Wireless DataCom business, which brought in more than 81%.

After M2M connections for Caterpillar, another promising market for the company is in what's called usage based insurance (UBI). CalAmp's technology is used by insurance companies to track braking, acceleration, cornering, and other data in cars. The insurance companies then use this information to make adjustments to a driver's insurance premium. CalAmp CEO, Michael Burdiek, said on the latest earnings call that, "We continue to believe that insurance telematics can be a key growth driver for CalAmp over the longer term, particularly as we bring to market value-added services beyond hardware devices."

To help with this, the company just closed on its acquisition of Crashboxx, which owns valuable intellectual property in the insurance telematics market. Based on technology from the acquisition, CalAmp's working on bringing new insurance products to market over the next few quarters, further solidifying CalAmp's lead in this segment.

The case for Sierra WirelessSierra Wireless makes wireless, embedded modules for M2M devices, wireless gateways and software to manage machine-to-machine communication. The company makes up to 34% of all M2M embedded wireless modules worldwide, which can be found in everything from Tesla's Model S to smart city lighting.

Right now about 85% of the company's revenue comes from these little modules, while the remaining 15% comes from software and services Sierra Wireless sells to companies to track, report, and manage M2M devices.

In its Q2 2015 earnings, Sierra Wireless' revenue from the modules and other OEM Solutions increased 18.5% year-over-year, and revenue from Enterprise Solutions (software and services) increased by 7.6% year-over-year.

Sierra has a clear lead in wireless embedded modules, and the company shipped its 100th million module just last year. One of the most promising opportunities for Sierra Wireless is its M2M management, though. Gartner expects 26 billion IoT connected devices (not including tablets, PCs, and smartphones) by 2020, and companies will need a comprehensive platform to manage them and access the data those devices provide.

If I had to pick one... While both stocks have a lot of potential in IoT -- and both receive recommendations from premium Motley Fool services -- I really like Sierra Wireless' leadership position in M2M modules right now and its growing enterprise solution business.

Sierra Wireless has a diversified automotive client base, with Ford, BMW, Tesla, Volvo, Toyota and others using its technology. The auto industry is adding more and more navigation options, remote diagnostics, entertainment, and Internet connectivity into vehicles, and I believe Sierra's position within the industry right now gives it a strong advantage as these trends grow.

In addition to its work in the automotive industry, I like Sierra Wireless' focus on smart cities, including a wireless city lighting project with Phillips in Prague, London, and Rotterdam. We're poised to see much more city energy conservation, emergency services management, and transit connectivity from cities and Sierra offers up fantastic solutions.

While both stocks are in a great position for the Internet of Things, investors should know that the relatively small size of both companies -- and the IoT's infancy -- means the stocks could experience some major fluctuations as they grow into this new industry.

Chris Neiger has no position in any stocks mentioned. The Motley Fool owns and recommends Apple, Sierra Wireless, and Tesla Motors. The Motley Fool recommends CalAmp, Ford, Gartner, and Progressive. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.